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Gold prices surge to 6-month high: Here’s why

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Gold is on the rise in early 2023 as the US economy shows signs of slowing down.

Gold prices have been on the rise in 2023, with investors buying the traditional safe haven as they look to offset a weakening economy.

The world economy continues to face headwinds. This is especially true in the US, with inflation and fears of a recession affecting investor sentiment.

With economic fears remaining, the price of gold is surging.

Such is the rally in the price of gold that over the last 2 months, the price of the precious metal is up nearly 15% and on late Friday was trading just short of US$1,900 an ounce.

At the time of writing, the spot price of gold was US$1,868.

Inflation and recession fears see gold prices spike

Once again there are 2 key factors driving the US markets.

The first is inflation, which looks as though it will continue to spike throughout early 2023.

According to the total nonfarm payroll figures, the US closed out 2022 on a high, adding 223,000 new jobs in December and capping off a year when 4.5 million new jobs were filled.

US unemployment is now 3.5% down from 3.6% in November.

The average hourly earnings is also up 0.3% in December compared with a 0.4% rise in November.

While some of the big companies including Amazon are announcing redundancies, overall the labour market remains tight.

And on the surface that might seem like good news.

However, a tight labour market puts pressure on wages which adds to inflation, which is already at 8.3% in the US.

Despite the incredibly tight labour market, December was the third-largest monthly decline in workforce activity since April 2020.

According to UKG vice president Dave Gilbertson, employers face an uncertain market, with retail activity fizzling during a historically busy period.

"Executives across all industries, regions and business-size segments are facing significant uncertainty when planning for 2023 as consumer demand begins to slow," he said.

What does this mean for the gold price?

Under rising inflation and a recessionary environment, experts are predicting 2023 could be a good year for gold investors.

Saxo's head of commodity strategy Ole Hansen said investors playing catch-up could see the price of gold soar.

"2023 is the year that the market finally discovers that inflation is set to remain ablaze for the foreseeable future," Hansen said.

The commodity strategist points to the US Fed still lifting rates and China's pivot from a COVID-zero policy seeing the commodity prices surge.

"Under-owned gold rips higher on the sea-change reset in forward real interest rate implications of this new backdrop," he added.

Overall, Hansen predicts the spot price of gold could rise above US$3,000 per ounce.

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